The world since the Great Financial Crisis (2007 to 2010) continued on a slow recovery path for the next decade driven by historically low interest rates, ballooned up central bank balance sheets and inflation rate that pretty much refused to climb up even up to expectations. There were a few panics and fits and starts along the way, but nothing significant came in the way of the recovery to derail it. Unemployment slowly, but surely went down to the lows in historic terms, and technology and innovation continued to claim new peaks. After more than a decade a recession was almost due. Even the yield curve tried to light the signal, which very quickly was switched off. So, as people looked forward to the next decade from the closing days of 2019 almost nobody could imagine what was about to hit planet earth - some call it the black swan event of the century, some call it the health crisis of a century. But, the story is not only about what it was, but also about how its managed and what resulted out of the way it was managed.

Context

• A major pandemic from a highly contagious disease spread back in early part of the 20th century. It came to be known as the Spanish flu. It resulted in many millions of deaths. Though world used to be much less integrated, the disease managed to spread to most corners of the world.

• Over the next century there were three critical developments that would play significant roles in the management of the crisis, and the stabilization process:

  • The healthcare technologies and systems improved by leaps and bounds lowering death rates and improving longitivtiy throughout all corners of the world. This technological development would have a very important role to play in fighting the health crisis.

  • The development of financial markets, finance technology and fiscal and monetary toolset in the management and stabilization process in dealing with a financial crisis. Some of the tools developed during the GFC would also come handy.

  • Development of computer processing and networking technologies is the third leg.

Timeline

• December 2019: First reports of a new virus infecting hundreds, then thousands, in Wuhan, China.

• January 21, 2020: First case of new coronavirus is reported in the United States.

• January 28-29, 2020: The Fed holds its first policy meeting of the year. Policymakers see 2020 as likely a year of steady growth with continued strength in the job market, and Fed Chair Jerome Powell expresses cautious optimism, in contrast to a rocky 2019 in which the Fed cut rates three times to blunt the effects of the Trump administration’s trade war with China.

• Friday, Feb. 28, 2020: In an abrupt turn, Powell releases a short statement pledging to “act as appropriate” in the face of economic impacts from the coronavirus outbreak as stock market losses accelerate, risk premiums on corporate bonds widen and the U.S. Treasuries market is hit by deep illiquidity.

• Monday, March 2, 2020: The Fed holds an emergency meeting by videoconference and unanimously decides to cut interest rates by 50 basis points as “a clear signal to the public that policymakers recognized the potential economic significance of the situation and were willing to move decisively.” The cut is announced on the morning of Tuesday, March 3.

• Sunday, March 15, 2020: After another emergency videoconference, the Fed slashes rates by 100 basis points to near zero, reintroduces forward guidance, restarts large-scale asset purchases and launches coordinated swap lines with five major foreign central banks, among other measures. One policymaker dissents. The Fed says the pandemic will take a “toll on U.S. economic activity in the near term” and makes clear it is “prepared to use its full range of tools to support the flow of credit to households and businesses.”

• March 16-31, 2020: The Fed launches range of measures to increase liquidity in financial markets and promises unlimited, open-ended large-scale asset purchases, including purchases of corporate and municipal bonds.

• April 9, 2020: The Fed rolls out a $2.3 trillion emergency lending effort to bolster local governments and small and mid-sized businesses.